Photo/Illutration The Tokyo head office of SMBC Nikko Securities Inc. (Naoko Kawamura)

Tokyo prosecutors have set their sights higher up the executive chain in the latest arrest in relation to suspected market manipulation by equity department officials at SMBC Nikko Securities Inc.

Officials of the Tokyo District Public Prosecutors Office announced on March 24 that they had arrested Toshihiro Sato, 59, a deputy president executive officer, on suspicion of market manipulation in breach of the Financial Instruments and Exchange Law.

Sato oversees the equity department where four high-ranking officials, including two executive officers, were arrested on March 4 on suspicion of market manipulation.

According to investigative sources, Sato has denied any wrongdoing during voluntary questioning by prosecutors.

Prosecutors said Sato is accused of placing a large buy order just before the Tokyo Stock Exchange closed on April 8, 2021, in an attempt to prop up the share price at a similar level to the close of the previous day.

The stock was one in which SMBC Nikko Securities was involved in block trades that involve large-volume sales of a stock by major shareholders.

Because the sale of a large number of shares at the same time could lead to a sharp drop in the share price, securities firms arrange to sell the shares in smaller bundles to other investors outside the market.

The share price for the transaction is determined by the closing price on the day the sale is to be made. But if the market share price drops, the shareholder that initially put the shares for sale can request a postponement in the transaction to avoid a damaging loss.

However, stopping a transaction is a step few securities firms are willing to make because of the risk of damaging the institution’s reputation and losing gains from the transaction.

The four other high-ranking officers already arrested are suspected of manipulating the price of five other stocks that SMBC Nikko Securities handled for block trades.

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